The Future of VoIP: Regulatory Storm Clouds on the Horizon

When the Federal Communications Commission preempted states from regulating Vonage (News - Alert) in late 2004, the entire voice over Internet protocol industry exhaled. Fears the industry would succumb to the burdensome regulatory framework applicable to providers of traditional, circuit-switched telecommunications services seemed to subside, especially with industry supporter Michael Powell at the commission’s helm.

But the industry’s brief sense of relief quickly evaporated. The slow creep of regulation has been accelerating ever since; and, with the likely extension of certain FCC (News - Alert) regulations to non-interconnected VoIP services already in queue, 2012 is shaping up to be an extremely active year on the regulatory front.

Shortly after Kevin Martin’s rise to the chairmanship, the FCC adopted rules requiring interconnected VoIP service providers to offer E911 to consumers. The newly minted regulatory term, “interconnected VoIP service,” was narrowly defined to include only those services that permitted consumers to place and receive calls from the public switched telephone network. Within a span of just four years, providers of interconnected VoIP services found themselves strapped with a bevy of FCC regulatory duties. Today, two-way VoIP providers must comply with nearly the identical slate of responsibilities as their circuit-switched brethren, including everything from Universal Service Fund and disability access obligations to CALEA, local number portability and numbering plan support, regulatory fees and, as of early 2009, even Section 214 discontinuance rules.

A brief respite accompanied the change in administrations, the dreaded calm before the storm. The winds have been whipping through much of 2011, and the storm clouds are now clearly within sight and moving quickly. The regulatory landscape appears headed for potentially turbulent changes in 2012.

Storm conditions arose late last year with the FCC’s decision to narrow the Vonage preemption order, granting state utility commissions the unequivocal authority to impose USF (and other public interest regulations) on nomadic VoIP service providers. A number of states have already responded by dusting off existing regulations and extending them to nomadic services. Others, including California, have opened proceedings to consider adopting new regulations.

Congress also stepped into the fray in 2010 with the passage of the 21st Century Communications and Video Accessibility Act, which statutorily codifies the Telecommunications Relay Services Fund contribution duties of interconnected VoIP providers and extends the duty to non-interconnected providers. The statute defines “non-interconnected VoIP” as a service that “enables real-time voice communications that originate from or terminate to the user’s location using Internet protocol or any successor protocol; and requires Internet protocol compatible customer premises equipment; and does not include any service that is an interconnected VoIP service.” The FCC initiated a rulemaking proceeding to implement the statute in March.

This summer the FCC opened yet another rulemaking proceeding affecting VoIP services, wherein the commission proposes extending VoIP E911 requirements to one-way, “outbound only” VoIP services, which currently apply only to two-way interconnected VoIP providers. Outbound-only VoIP services allow users to place outbound calls to the PSTN, but not to receive inbound calls from the PSTN. The FCC has never required one-way VoIP providers to provide 911 services. However, in light of the increase in consumer access and use of these one-way/outbound-only interconnected VoIP services, the FCC appears ready and willing to expand the regulatory net to capture outbound-only interconnected VoIP service providers and require them to adhere to the same 911 mandates imposed on two-way interconnected VoIP providers.

But the bad news does not end with E911. E911 marked the beginning of the FCC’s several year-long exercise of extending a host of existing regulatory requirements to interconnected VoIP services in an ad hoc, piecemeal manner. The recent notice of proposed rulemaking sets the foundation for the immediate expansion of all these existing regulatory duties not only to non-interconnected VoIP services, but to any VoIP service accessed via the Internet that allows users to connect to a telephone number.

Specifically, the FCC’s notice asks whether it should revise the current definition of interconnected VoIP service to address changes in technology. In 2004, the FCC defined interconnected VoIP service as a service that (1) enables real-time, two-way voice communications; (2) requires a broadband connection from the user’s location; (3) requires Internet protocol-compatible customer premises equipment; and (4) permits users generally to receive calls that originate on the PSTN and to terminate calls to the PSTN. The notice asks whether the FCC should modify the definition’s second prong to specify an “Internet connection,” rather than a broadband connection. It also considers whether the FCC should modify the definition’s fourth prong to define connectivity in terms of the ability to connect calls to United States E.164 telephone numbers rather than the PSTN.

With regulatory creep beginning to escalate once again (and in an increasingly expansive manner), providers of all gradients of VoIP services might begin asking themselves if it would be less painful to just rip the bandage off than to endure another several years of uncertainty, always waiting for the next shoe to drop. In an industry and an economy in search of steady footing, the seemingly perpetual questions about the regulatory fate of VoIP services are antithetical to investment and growth. Yet that is precisely the direction in which the industry appears to be headed.

Jonathan S. Marashlian is the head of the regulatory practice of Helein & Marashlian, LLC, The CommLaw Group. To read more of his articles, please visit please visit his columnist page.